Portugal

Portugal’s economy showed renewed strength in 2025 despite prolonged global uncertainty, with GDP expected to have expanded by +1.9%. Domestic demand was the main growth driver, reflecting stronger private consumption, which is expected to continue supporting growth, aided by tax cuts and exceptional income measures, though a slowdown may follow as household incomes normalize. Investment activity is also benefiting from the acceleration of NGEU-related spending in the last year into the program. Overall, we expect economic growth of +1.9% in 2026 before it normalizes to +1.6% in 2027. Despite multiple global challenges, the Portuguese economy still benefits from a strong tourism sector (which accounts for almost 20% of GDP) and generous inflows from the NGEU instrument. 

Inflation in Portugal averaged 2.3% in 2025, influenced by energy products (annual average rate of -0.2% vs. 3.2% in the previous year) and the decrease of core inflation (+2.2% from +2.5% in 2024). Conversely, unprocessed food presented a higher contribution to the 2025 annual average rate, with an annual average rate of 4.8% (1.6% in the previous year). We expect price growth to stabilize around the ECB target in 2026-2027.

In February, Portugal held the seventh election in three years, raising concerns about voter turnout and election fatigue. In the presidential elections runoff on 8 February, the Socialist Party candidate Antonio Jose Seguro won 2/3 of votes, compared with 1/3 for Andre Ventura populist anti-immigration Chega party, which has surged to become Portugal's second-largest parliamentary force with 22.8% in the May 2025 legislative elections. While the Portuguese presidency holds largely ceremonial powers, the president can dissolve parliament, veto legislation and influence political stability during crises. Meanwhile, the minority government led by the center-right Democratic Alliance already faces challenges in passing legislation, and political uncertainty from the presidential race could complicate fiscal consolidation efforts and structural reforms needed to address Portugal's high debt levels, housing crisis and demographic challenges. However, Portugal's democratic institutions remain robust, and the tradition of political stability and pro-EU orientation has historically provided continuity despite fragmented parliaments.